It's now common knowledge that Microsoft has withdrawn its 3-month-old bid for Yahoo! Inc, after failing to reach an acceptable price agreement. Microsoft Chief Executive Steve Ballmer had offered to pay $33 per share, or $47.5 billion, for Yahoo!, up from an initial bid valued at $44.6 billion, or $31 per share. Yahoo!'s board wanted $37 per share - a price that the company's stock hasn't reached in more than two years.Microsoft trails Google and Yahoo! in the US $41-billion market for online search and internet advertising - and the bid for Yahoo! was clearly an attempt to turn things around. Buying Yahoo! would have more than tripled Microsoft's share of searches and stepped up competition with Google, which has grown faster than Microsoft in every quarter since Google's 2004 initial public offering. Microsoft, on the other hand, posted a US $228-million loss last quarter.
The software maker now needs to prove that it can innovate without Yahoo! as a partner. But 'without Yahoo!' doesn't necessarily mean without anybody. Bill Gates has expressed Microsoft's intentions to make 'advances' in its own search offering and to expand through 'strategic transactions' - and it seems he's quick to act on his word.
Just a few days after walking away from its Yahoo! bid, Microsoft has already reportedly set its eyes on Facebook - the second-largest social network behind MySpace. Microsoft CEO Steve Ballmer has mentioned that Facebook would give the company some Web scale. Moreover, Microsoft already owns a 1.6 percent stake - worth $240 million - in the social networking site. According to the Wall Street Journal, Microsoft's bankers have contacted Facebook to see if Mark Zuckerberg and company would be interested in selling the company. There are apparently no active discussions regarding the issue as of yet.
Microsoft's investment always implied an eventual Facebook valuation; but is it a mere coincidence that the proposition has arrived just a few days removed from the Yahoo! debacle? Perhaps the folks at Microsoft are looking to turn up the heat on Jerry Yang and his investors at Yahoo!, should Microsoft decide to put forth another proposition. Or maybe it's simply an effort on Microsoft's part to save face after having $47.5 billion turned away. Microsoft may even just be looking to acquire some hot Web 2.0 names, in which case the likes of Digg or LinkedIn might satisfy their appetite. Whatever the reason, one thing is certain - Microsoft currently holds a significant want for scale and a whole lot of capital to get it. Will Facebook take the bait?
